How To Start A Small Business In California


California, with over 4.2 million small businesses, leads the United States in entrepreneurial endeavors. The Golden State offers an enticing business environment, largely due to its thriving economy, vast networking opportunities, a growing customer base, and a rich pool of talent for hire. This blog will guide you through the comprehensive steps of establishing your small business in California, from refining your business idea to obtaining funding, registration, and finally launching your venture.

Starting A Small Business In California

1. Choose a Business Idea

The type of small business you want to start

Your first step is deciding the type of business you want to establish. Are you aiming to sell products or services? Do you envision an eCommerce business or a traditional brick-and-mortar establishment? Would it be a home-based business, or do you need office space? Is your focus on B2B or B2C? It’s essential to determine the industry your business will fall under.

Conduct A Competitive Market Research

In-depth market research is paramount to understanding your industry, competitors, and target customers. Identify your unique selling point (USP) to set your business apart. Look at data for California’s most successful small businesses, follow tips to start a successful business, and learn from case studies of past failed ventures to avoid similar pitfalls.

Create A Vision For Your Business

Before starting a small business, ask yourself why you’re pursuing this path. Is it driven by passion, financial goals, or both? Will it be a side gig or your main income source? Understand the risks involved and have a backup plan. These considerations will help you develop a clear vision for your business and prepare you for potential uncertainties.

2. Create a Business Plan

A well-drafted business plan is your roadmap to success. It provides a detailed outline of your business goals, strategies to achieve them, and the resources required. Key elements include an executive summary, company description, market analysis, organization and management structure, product line or service details, marketing and sales strategies, and financial projections. Creating a business plan not only helps you stay focused but also attracts potential investors. Don’t hesitate to revisit the business plan if things change while you execute the next steps.

3. Choose a Business Name

Picking a unique business name is crucial to stand out in the crowd. Use the California Secretary of State’s business name search tool to ensure your chosen name isn’t already in use. Check whether the name has been trademarked and consider trademarking it yourself for added protection. Before finalizing, check the availability of corresponding website domains and social media handles to maintain brand consistency across platforms.

4. Obtain Business Funding

Securing sufficient business capital is a critical step. Various funding sources for California small businesses include federal and local government-based grants, SBA loans, self-funding, crowdfunding, and small business loans from alternative lenders and banks. Funding amounts vary, with grants usually offering smaller amounts, while loans can run into the millions depending on your business needs. Remember, most lenders require a business to be operational for at least six months before considering a loan.

5. Choose a legal structure for your business

There are four main types of legal business entities: Sole Proprietorship, Partnership (General, Limited, Limited Liability), Limited Liability Company (LLC), and Corporation (C-Corp, S-Corp). Each has unique implications for liability, taxes, and administration.

Sole Proprietorship

A sole proprietorship is the simplest form of business structure, owned and operated by a single individual. As a sole proprietor, you have full control over the business. However, you’re also personally liable for business debts and liabilities. This means your personal assets could be at risk if your business encounters legal issues or incurs debt. Despite this risk, many prefer this structure for its ease of setup, minimal paperwork, and direct control. In terms of taxes, a sole proprietor isn’t required to file taxes for their business separately as they are supposed to disclose their business income while filing personal taxes.


A Limited Liability Company (LLC) offers more protection and flexibility. It combines a partnership’s operational flexibility with a corporation’s personal liability protection. As an LLC, your assets are generally safe from business debts and legal liabilities. Also, profits and losses can be passed directly to owners’ personal income without facing corporate taxes. The drawbacks include a more complex setup, ongoing paperwork, and potentially higher setup costs compared to a sole proprietorship.


In a partnership, two or more individuals jointly own the business. There are three types:

  1. General Partnerships involve equal responsibility among partners. Each partner shares the profits, losses, and management, but also bears personal liability for business debts and liabilities.
  2. Limited Partnerships are structured with at least one general partner and one or more limited partners. The general partner has unlimited liability while limited partners have liability proportional to their investment.
  3. Limited Liability Partnerships (LLP) offer all partners limited liability, protecting personal assets from business debts, while allowing each partner to be involved in management.

Despite profit-sharing benefits, partnerships may face challenges regarding role distribution, decision-making, and profit division, making a comprehensive agreement crucial.


A corporation is a legal entity separate from its owners, offering liability protection. It involves a more complex structure and administrative duties than sole proprietorship or partnerships. There are two types of corporations: a C-Corp and S-Corp. The former is taxed separately from its owners, while the latter allows profits and losses to pass through to owners’ personal income without corporate tax rates, but has shareholder limitations.

6. Choose a Registered Agent

A registered agent is an individual or business entity responsible for receiving legal and government documents on behalf of your business. This includes tax forms, legal notices, and correspondence from the Secretary of State. Choosing a reliable registered agent is crucial for maintaining good standing with state law. You can serve as your own registered agent, but consider availability, discretion, and organizational needs.

7. Apply for Federal Employer Identification Number

A Federal Employer Identification Number (EIN) is your business’s tax ID number, akin to an individual’s Social Security Number. It’s necessary for tax administration, opening a bank account, and hiring employees. You can apply for an EIN from the IRS for free, either online, by fax, or by mail. Online applicants receive their EIN immediately, while fax and mail applications take four and five weeks, respectively.

8. Register Your Company

To officially launch your business in California, you must register your company, a process that varies by structure. For an LLC, you file the Articles of Organization (Form LLC-1) with a $70 fee. Limited Liability Partnerships (LLPs) require a Registration Form (Form LLP-1), with a $70 filing fee. General Partnerships don’t formally register but filing a Statement of Partnership Authority (Form GP-1) helps protect partnership rights. For corporations, file the Articles of Incorporation (Form ARTS-GS) with a $100 fee. Please note, additional costs may apply, and these are as per 2023 fees.

9. Register a Fictitious Business Name

Registering a Fictitious Business Name (FBN), or “Doing Business As” (DBA), enhances your business’s visibility, legitimacy, and marketability. In California, this process is county-specific, and fees vary, averaging around $40. An FBN is crucial if your company operates under a name different from its legal name. Note, an FBN doesn’t give exclusive rights to the name.

10. Find Location for Your Business

Your business’s location influences its success, dictating customer accessibility, visibility, and operational regulations. Depending on the location, permits, licenses, and insurance requirements can differ significantly. Home-based businesses, for instance, face different regulations than brick-and-mortar stores. Consequently, a careful location choice, aligned with your business model and goals, is important.

11. Obtain Insurance

Business insurance is crucial for risk management. It generally covers property damage, legal liability, and employee-related risks. Essential coverages include general liability, commercial property, and workers’ compensation insurance. Cyber liability, professional liability, and business interruption insurance are valuable add-ons.

12. Hire Employees

Hiring employees in California involves acquiring an Employer Identification Number, setting up tax withholding, obtaining workers’ compensation insurance, and more. California’s labor laws mandate benefits like paid sick leave, overtime pay, and meal breaks. Employers must also ensure compliance with anti-discrimination and harassment laws. Consider outsourcing to a professional employer organization for comprehensive HR solutions.

13. Tie up with Vendors, Distributors, and Shipping Companies

Establishing long-standing relationships with vendors, distributors, and shipping companies is crucial for efficient business operations. Vendors help acquire necessary inventory or raw materials. Distributors expand your product’s reach, and shipping companies ensure timely delivery to customers. For instance, an organic skincare brand might contract with botanical vendors, team up with health stores for distribution, and use eco-friendly shipping services for customer deliveries.

14. Pay and Collect Taxes

Businesses in California must manage various taxes, including franchise tax, sales and use tax, and payroll taxes. Each is unique, varying in calculation and applicability.

 Minimum Franchise Tax

All corporations and LLCs in California are subject to a minimum franchise tax of $800, payable on the first year of business. The amount is fixed regardless of business income but can vary based on subsequent profit.

 Sales & Use Tax

California’s sales tax applies to retail sales of tangible personal property, typically at a rate of 7.25%. Use tax is for out-of-state purchases used, stored, or consumed in California. Both taxes are essential revenue sources for the state government.

 California State Payroll Taxes

California payroll taxes comprise several components, including state disability insurance (SDI), unemployment insurance (UI), employment training tax (ETT), and personal income tax (PIT). The UI maximum limit is $7,000 per employee, the ETT rate is 0.1%, the SDI limit is $153,164 (as of 2023), and PIT varies with income. Employers must deduct and remit these taxes.

 15. Tax Credits and Incentives for California Employers

California offers multiple tax incentives for small businesses, such as the New Employment Credit, California Competes Tax Credit, and Research & Development Tax Credit. Under the Work Opportunity Tax Credit program, the state also provides hiring credits for employing workers from specific target groups, like veterans or ex-offenders.

 16. Obtain Required Business Licenses and Permits

Visit California’s permit assistance portal CalGold for required licenses and permits. Operating without required licenses could lead to penalties, fines, or even business closure. Stay compliant to avoid these unnecessary risks.

 17. Open a Business Checking Bank Account

Open a business bank account, considering factors like transaction limits, fees, and credit-building opportunities. Good financial management enhances your business credit score, so make sure to choose the right banking for your business.

 18. Build a Business Website

In the digital age, a business website is vital. It’s your digital storefront, providing information and sales opportunities. For instance, a restaurant website can display menus, accept reservations, and facilitate deliveries, broadening customer reach while lowering overhead costs. In essence, a well-crafted website can significantly boost your profits by driving new and existing customers.

 19. Invest in Marketing to Promote Your Business

Determine your business’s marketing needs and budget accordingly. Allocate SEO, paid ads, social media, and local advertising funds to increase your brand visibility and promote your business offerings to potential customers.

 Bottom Line

The Small Business Development Center provides local resources for company registration, legal structuring, and tax accounting in California.

For funding, consider National Funding, where we cater not only small businesses in Los Angeles, San Francisco, and San Diego, but small businesses across the state. National Funding offers loans tailored to your small business’s unique needs.

Frequently Asked Questions (FAQs)

How do I get the money to start a business in California?

Starting a business in California may require significant funding. Potential sources include personal savings, loans from friends and family, small business loans from online lenders and banks, crowdfunding, and venture capital. Government-backed loans from the Small Business Administration are another viable option. Additionally, California offers several small business grants and assistance programs. Remember, securing funding requires a solid business plan and, often, a good credit history.

How much does it cost to start an LLC in California?

The initial cost to form an LLC in California is $70, which covers the filing fee for the Articles of Organization with the Secretary of State. However, California LLCs are also subject to an $800 annual franchise tax, plus a fee based on the LLC’s total annual income. Don’t forget other potential costs such as obtaining necessary permits, licenses, and insurance, and drafting an operating agreement.

How do I dissolve an LLC if I decide to close it?

Dissolving an LLC in California involves several steps. First, the LLC members must vote to dissolve the LLC, usually according to the rules set out in the operating agreement. Then, the LLC must file Form LLC-3 (Certificate of Dissolution) and Form LLC-4/7 (Certificate of Cancellation) with the California Secretary of State. Before dissolution, the LLC must settle its debts, distribute remaining assets to members, and file final tax returns.

Do you need a business license in California?

Yes, most businesses in California require some form of license or permit to operate legally. The specific requirements vary depending on the type of business and its location. You can search for the necessary permits and licenses on California’s CalGold website. Not having the required licenses and permits can lead to penalties and even business closure.

How to start a home-based business in California?

Starting a home-based business in California involves similar steps to starting any business, such as creating a business plan, obtaining an EIN, and choosing a business structure. However, you’ll also need to comply with local zoning laws, which may restrict certain types of businesses from operating in residential areas. You might also need a home occupation permit. And if clients will visit your home, consider additional liability insurance for protection.



Disclaimer:  National Funding, Inc. presents this webpage content for information purposes only. The information is not intended to constitute legal, accounting or tax advice or to replace such professional advice. No one can detrimentally rely upon the information provided. National Funding, Inc. reserves the right to correct any content errors, and presents this information without warranties, express or implied, regarding its accuracy, timeliness or completeness.